One of the most valuable assets a couple owns is their home. Determining who gets the house in a divorce can be a challenging situation. There are many options available, depending on how friendly the divorce is, your financial situation, and your long-term goals. Learn more about how to divide property in a divorce, factors influencing home ownership, and what options are available.
Who gets the house in a divorce?
The answer to this question depends on a number of factors, including when the house was bought, where you live, who paid for it, and who wants it. Additionally, if the couple has a prenuptial or post-nuptial agreement, the distribution of assets may already be pre-determined.
Some couples choose the division of assets themselves and enter a no-contest divorce settlement with the courts. In other situations, a divorce attorney and a judge are necessary to resolve differences and issue a court order on how assets are distributed.
When deciding who gets the house in a divorce, consider these factors:
- Can you afford the mortgage and monthly expenses?
- Will the memories of the home affect you?
- Do you have school-age children?
- Would you prefer to have other assets instead?
- What are the current trends in the housing market?
- What’s the home’s value versus your mortgage balance?
Understanding property division in divorce
How property is divided in a divorce often depends on which state you live in and the laws that apply. In any situation, you should strive for a fair and equitable distribution of assets to both parties.
Equitable distribution vs. community property states
Community property states assume that all assets earned or acquired during the marriage are owned equally by both divorcing spouses. There are nine states that use community property rules — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — plus Puerto Rico. Alaska, Florida, Kentucky, Tennessee and South Dakota give couples the option to choose community property laws.
Equitable distribution allows a judge to distribute assets in an equitable fashion that may favor one spouse over another. The division of assets can be based on need, earnings or other factors.
Marital assets vs. separate property
Marital property is the assets and debt that a couple acquires during their marriage. Examples include bank and investment accounts, credit cards, and the home and its accompanying mortgage.
Separate property is assets that were acquired before marriage. These assets are not included in the divorce settlement unless they were commingled with marital assets or if the spouse contributed to them (or their growth) during the marriage.
Being fair and equitable in divorce
When deciding who gets the house and other assets in a divorce, the judge seeks to be fair and equitable to both parties. While couples have many reasons for getting divorced, the judge is impartial and is not there to punish either spouse.
Factors influencing house ownership
Whether you’re married or single, owning a home is a big decision. Consider these factors when deciding which spouse will receive the home in a divorce.
Financial contributions and obligations
Making monthly mortgage payments can be a challenge for newly divorced people. As you adjust to this new phase in life, you’ll need to make the mortgage payment, including insurance and taxes, plus cover ongoing expenses, like utilities, maintenance and repairs. In some cases, the judge will require the other spouse to contribute to the mortgage payment.
While owning a home is a financial commitment, other considerations also play a role in the decision. The home may have special memories for one spouse. It could be close to work, family or friends, or it may be located in a highly desirable school district. While it is easy to quantify the monetary value of a home, emotional value may play a role as well for some couples.
Best interests of the children
If you have young children, you should also factor in the best interests of the children when deciding who gets the house in a divorce. Typically, the person who has primary custody of the children is the one staying in the home. This provides continuity for the children and allows them to continue going to the same schools during this adjustment period.
Future financial stability and earning capacity
When taking over the home in a divorce, it is also important to consider your future finances. Will you be able to save for retirement and other goals while managing the monthly bills of this home? Additionally, consider the stability of your income. Can you reasonably expect to continue receiving the same income, or will you be able to increase your income in the future?
Options for house ownership
Divorcing couples have numerous options available for their family home. Their decision may be based on financial needs, child care and other factors. These are the most common choices for who gets the house in a divorce.
Sell the house and divide proceeds
The cleanest choice is often to sell the house and divide the proceeds between the divorcing spouses. If both parties agree, this allows for each spouse to have a fresh start without ties to their former spouse.
Selling the home could result in a tax bill depending on how long you’ve owned the home and how much it has appreciated. It also insulates you from a possible loss of equity if the housing market drops. Just keep in mind that selling a home involves real estate commissions, closing costs, and other expenses that can reduce your net proceeds.
One spouse buys out the other’s share
If one spouse wants to stay in the home, they could buy the other spouse’s share. However, if they don’t have enough cash or other assets, financing the purchase can be difficult. It is possible to refinance the home to pull out enough cash, but getting approved for a loan using one person’s income can be challenging. Using Point.com’s Home Equity Investment (HEI) program is an attractive option to stay in the house. It offers access to your equity without monthly payments or income requirements, which can be a welcome relief during a divorce.
Co-owning the house
Some couples decide to co-own their former home to make it easier to co-parent their children. This allows parenting time for both parents without moving the kids between two locations. The decision to live in the house can be tricky to manage, but it doesn’t trigger capital gains taxes or require refinancing the home. However, the divorcing spouses must agree on how to divide mortgage payments, tax deductions, future repairs, ongoing maintenance, and monthly utilities.
Rent as an investment property
Converting a home into a rental property is a popular option for many homeowners. It provides a recurring stream of income and postpones the decision of how to split the home’s equity. If your home isn't ready for prospective tenants, Point.com's HEI program can fund the necessary repairs to attract tenants. Just remember that co-owning a rental property as divorcing spouses can lead to issues down the road if former spouses don’t agree on how to handle property decisions.
Legal considerations and professional advice
When going through a divorce, getting professional advice helps to understand your rights and responsibilities when dividing assets, like a home, retirement accounts, and bank accounts.
Consulting with a family law attorney
A family law attorney understands the local laws and how they relate to property distribution, spousal support, child custody, and other important details. Many couples go through the divorce process without being represented by an attorney. However, it can make sense to at least consult with an attorney to understand your rights.
Understanding legal rights and obligations
Whether you work with a family law attorney or not, you need to know your legal rights and obligations when going through a divorce. Without this understanding, you could run afoul of the law or miss out on your fair share of community assets.
Navigating mortgage complexities
Most houses involved in a divorce have a mortgage against the home. When couples divorce, the lender still holds both borrowers liable for repaying the loan. Getting approved for a refinance of an existing mortgage can be a challenge on a single income. Talk with your lender and a mortgage broker about the best course of action.
Tax implications and liabilities
When splitting or selling assets during a divorce, you could incur a tax bill for those transactions. Additionally, the couple may have other debt besides the mortgage that need to be addressed. Working with an accountant or financial advisor can help you navigate this process.
The bottom line about splitting assets in divorce
Who gets the home in a divorce is often one of the biggest questions a couple faces. This decision has numerous financial implications, and emotions can play a role as well. Your financial interest in the home depends on your state of residence, who paid the mortgage, and other factors, including if you have a prenuptial or post-nuptial agreement. Some couples sell the home and split the proceeds, while others buy out the other spouse or continue joint ownership of the property. Explore all of your options and how they affect your finances before making a decision.